Malayan Banking - Dances with Tiger

Malayan Banking Bhd (“Maybank”), with its strong Kim Eng stockbroking network in the region, is likely to see an impressive rise in earnings in 2013 with the possibility of the group delivering or even outperforming its fee-related incomes growth. In addition, the earnings upside could also come from a lower credit charged-off rate going forward as well as a stronger than expected loan growth from the ETP-rollout. The group offers a good dividend yield of 6.3%. Our Target Price of RM10.40, based on 2.0x FY13 P/BV, implies a reasonable 14.9x FY13 PER.  

MAYBANK is one of the key beneficiaries from the ETP projects rollout with its corporate loans growth likely to see a healthy 1H2013. Management said it continues to see a slightly above-industry loan growth for the group driven by stronger loan demand from GLC-related companies on ETP-related projects as well as from the Oil & Gas sector and also from the Sarawak’s SCORE projects. As such, we do not discount the possibility of the group delivering a FY13 loan growth target in the range of 11%-13%.  

Strong links to GLCs, lowest cost of funding and a solid Islamic Banking franchise could also be its key medium-term investment drivers. It is also positioned well to benefit from an increase in financing demand for large infrastructure projects, especially government-related ones. 

MAYBANK aims to strengthen its domestic leadership  while aggressively pursuing for an ASEAN market expansion via an acquisition strategy, which will enable it to have  a better geographic coverage and client interaction in deriving synergies. It is now one of the biggest proxies to ride the ASEAN region resurgence and have started to reap the fruits from its plan and seeing the synergies on its Kim Eng integration.  We expect the region’s economic growth to remain resilient over the next 2-3 years. 

Its area of opportunities in the region includes driving more cross-border deals, growing its Islamic banking business and offering more treasury products and services (i.e. hedging, currency and swap). This should result in its non-interest income growing further over the medium term.   Maybank is also set to benefit from the recovery of its impaired assets going forward. The estimated credit cost rate is at c.23bps in FY13 with management conservatively guiding for a normalised level of c.30-40bps. The improvement here is as a result of  its success in managing its assets quality. This rapid reduction in its asset impairment provision will provide the group additional operational leverage and contribute positively to the bottom line.

Maintaining OUTPERFORM with a Target of RM10.40. Given its continuing good prospects, we are maintaining our OUTPERFORM rating on MAYBANK. We peg our Target Price at RM10.40, based on 2.0x FY13 P/BV, implying a reasonable 14.9x FY13 PER. 

Source: Kenanga